Fresh Perspectives

Winning in China:
Building Talent Competitiveness

In This

Article

Chinas talent landscape is changing; Chinese companies are gradually gaining traction on the international stage and foreign companies are losing their appeal for Chinese workers, who now prefer to work for Chinese private-owned companies.* Foreign companies operating in China will face greater challenges finding the talent they need and will find it particularly difficult to retain talent at the manager level where shortages are most severe. They no longer have a reputation as the highest-paying and best employers. HR management in foreign companies are already feeling the effects of competition from Chinese private-owned companies as they struggle to attract talent, yet surprisingly few are responding to the challenge. Competition for talent can only intensify as Chinese privateowned companies are ambitious about initial public offerings and internationalization and more foreign companies increase their focus on the Chinese market. In response to the escalating war for talent, foreign companies must leverage HR as a strategic partner in order to ensure the recruitment and retention of top talent over local private-owned companies. They must also offer competitive salaries and benefits, prioritize the development of future managers and localize their talent strategies to the Chinese market. Chinese private-owned companies still face serious challenges in modernizing their internal management systems. They still must invest intensively in their human capital in order to compete effectively with foreign companies for talent.
* Refers to companies not owned by the State.

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Manpower Inc. (NYSE:MAN), ranked number 143 on the Fortune 500 list, provides innovative workforce solutions to organizations of all sizes via its network of 4,000 offices in 82 countries and territories. For more information visit www.manpower.com.

2 Winning In China: Building Talent Competitiveness

Introduction
For over three decades, foreign companies have flourished in China. Many Fortune 500 companies now have operations in the country, including: General Electric, AT&T, General Motors, Microsoft and Pepsi Cola. In April 2010, foreign direct investment surged 24.7 percent year-on-year to over $7 billion, according to the Chinese Ministry of Commerce.1 With a reputation as golden brands, foreign companies have long been regarded by Chinese workers as highly desirable places to work. However, all that is starting to change. In the wake of the recent financial crisis, many foreign companies have cut production and reduced their payrolls; some have even shut down Chinese operations. Recent unrest and industrial action among workers also indicates a pool of disgruntled workers who are seeking improved benefits.2 It seems that foreign companies are beginning to lose their allure. This comes at a bad time; Chinas working population is aging and the number of Chinese workers ages 15-19 will fall dramatically after 2011, according to the United States Census Bureau.3 Maintaining their talent pipeline, particularly at the manager level, is now a business critical issue for foreign-owned companies. Compounding the challenge for foreign companies, more Chinese firms, both stateowned and private-owned, are gaining prestige on the international stage and are enjoying a better reputation among workers. In this context, the talent war between foreign and Chinese privateowned companies is beginning to turn in favor of Chinese private-owned companies. While this trend presents many opportunities for Chinese private-owned companiesboth domestically and overseasforeign organizations will face greater challenges in finding the talent they need to help them achieve their business objectives.

A shifting talent landscape

Manpowers 2010 Foreign and Chinese Private-Owned Companies Talent Competitiveness Survey indicates that the lure of foreign-owned companies is now waning for Chinese employees, with more preferring instead to work for Chinese private-owned businesses.4 The data reveals a clear change in job seekers preferences; compared to the 2006 survey results, the percentage of job seekers considering Chinese private-owned companies as their first choice is up by five percentage points, while those preferring foreign companies is down by 10 percentage points (see Chart 1).5 Chinese private-owned companies are especially favored by job seekers from South China where companies are relatively more mature and generally have more modern management systems. These companies, such as Anta, Vanke and Hengan, are well respected in their industries and have good reputations as employers.

Chart 1: Individuals Employer Preferences

Which type of company would be your first choice when you consider your next transition?
Chinese privateowned companies Foreign companies down 10% up 5%

Percentage of job seekers considering Chinese private-owned companies as their first choice is up by five percent compared to 2006.

Percentage of job seekers considering foreign companies as their first choice is down by 10 percent compared to 2006.

Source: Manpower China

Fresh Perspectives

With talent shortages becoming more acute, and as fast-growing Chinese private-owned companies become more competitive, foreign companies will find it increasingly challenging to retain managers. Manpowers survey indicates that this pressure will continue and even intensify as Chinese privateowned companies have become markedly more attractive to management-level job seekers.6 Sixty percent of managers responding to the survey say that a Chinese private-owned company would now be their first choice as an employer. Chart 2: Primary Drivers of Company Preference What are the primary reasons for choosing these companies?
Chinese private-owned companies 59% 43% 37% 28% 31% 22% Better compensation and benefits package Better work capabilities Better training and learning opportunities Facilitating long-term career development 20% Experiencing new corporate culture and environment 16% 9% Accommodating better work/life balance 52% Foreign companies 48%

36%

Source: Manpower China

Foreign companies face further competitive threats from Chinese private-owned companies which have been investing heavily in talent, offering highly favorable compensation and benefits packages. Consequently, foreign companies no longer have a reputation as the highest-paying employers. Manpowers survey reveals that 43 percent of job seekers view better compensation as the primary reason to favor Chinese private-owned companies, seven percentage points higher than for those who are attracted to foreign companies (see Chart 2). However, when it comes to corporate culture, Chinese private-owned companies still lag behind their foreign counterparts. Only 20 percent of job seekers view experiencing a new corporate culture as the primary reason to choose Chinese private-owned companies, compared to 28 percent among those preferring employment with foreign companies.

As a global organization with operations in China, we are seeing the impact of this shift in motivations of job seekers assome are becoming less loyal to the companies they work for and more loyal to their purpose, said John Rice, President and CEO of General Electric Technology Infrastructure. Thats why, at GE, we have intentionally fostered a culture of continuous learning to increase the experience and exposure were giving our employees and help develop their careers.
These shifts in the balance of talent are already being felt among HR management of foreign companies. Sixty percent say they feel the effects of competition from Chinese private-owned companies when it comes to their ability to attract talent and they say this impact is increasing, particularly in Eastern China. However, surprisingly few foreign companies are responding to the challenge. The percentage of foreign companies who have taken countermeasures to improve their talent attraction strategies is lower than, or almost the same as, that of Chinese private-owned companies. The difference is especially evident when it comes to making an investment to secure talent, including increasing compensation and benefits packages (a 10 percentage point gap) as well as offering training incentives and learning opportunities (a 16 percentage point gap, see Chart 3).
4 Winning In China: Building Talent Competitiveness

A Critical Battle for Talent

So what does the future hold for foreign and Chinese private-owned companies competing for talent? As growth continues, Chinese companies are generally ambitious about initial public offerings (IPO) and internationalization. On the other hand, at the global strategic level, more foreign companies are significantly increasing their focus on the Chinese market. This means that competition between the two groups to attract and retain talent will only intensify as they seek to increase their footholds in the Chinese market.

Winning the Talent War: Advice for Foreign Companies

Maintain a flexible compensation system: When
Chart 3: Employer Measures to Attract and Retain Talent foreign companies first started operations in China, Chinese employees were offered remuneration similar to those of foreign staff. Now, however, compensation and benefits offered to executives by some Chinese private-owned companies are even more attractive than those offered by foreign companies. Their equity incentive plans are particularly effective in luring executive talent away from foreign companies. In addition, some foreign companies assume that since labor in China is cheap, they can pay lower salaries to local executives. As a result, some local executives are paid half or even a third of the salaries that foreign executives receive, even though the latters performances are not necessarily any better than that of local executives. Such unfair compensation distribution clearly has a serious negative impact on local employees motivation to work for foreign-owned companies. Manpowers annual 2010 Talent Shortage Survey shows that skills shortages in China are most severe among senior managers, so to win over scarce local talent, foreign companies have to pay local senior managers at least as much as those from overseas.7 However, pay is rising across the board. In fact, from 2002 to 2006 workers wages rose by more than nine percent per year (in U.S. Dollars) nationwide, while wages jumped by over 11 percent for those working in cities.8 In order to maintain sustainable competitiveness, it is critical for foreign companies to exercise flexible compensation systems which adapt quickly to market changes. Moreover, the frequency and margin of pay adjustment should be based on the severity of the shortages and demand for relevant talent in the market. Due to the mismatch between supply and demand, it is not uncommon for managers in some positions to receive an annual two-digit percentage salary increase in order to retain them.9
Fresh Perspectives 5

Given the increasingly competitive environment, what measures will your company take to attract and retain talent? (You may select more than one choice)
Chinese private-owned companies Foreign companies

Increasing compensation and benefits packages Offering better work opportunities Offering more training and learning opportunities Providing career planning for employees Improving employer brand, shaping better corporate culture and environment Adopting professional HR services No measures available at present 8% 8% 22% 22% 39% 33%

72% 62%

67% 51% 47% 28% 47% 37%

Source: Manpower China

Leverage unique training opportunities: From the perspective of

talent retention and business costs, it is not a long-term solution to rely solely on increasing compensation and benefits packages; companies poaching talent with attractive remuneration should be wary of finding themselves stuck in a vicious cycle as other companies poach their talent with even higher wages. Although money is a critical factor in talent attraction, particularly for management roles, it is by no means the only factor: Chinese managers are also attracted by training and development opportunities. Many Chinese private-owned companies have started paying attention to talent development as they experience fast growth; some are even developing their own training schemes. To stay ahead of the game in terms of employee training and development opportunities, foreign companies should continue to leverage their unique advantages, for example, by offering high achievers the opportunity to experience diverse cultures and cross-country training, regardless of their position, educational background or seniority. Foreign companies should also combine successor planning with leadership training and maintain a strong focus on employee development within the whole company.

Break the glass ceiling: Some foreign companies have started to

assign local talent to senior executive positions in China. This trend should be encouraged, especially for Japanese and Korean companies, but most foreign companies still appoint expatriate managers. This has led to many talented executives choosing to work for Chinese private-owned companies in recent years because they reached the glass ceiling at foreign companiesthat is, they could progress no further. This trend is confirmed in Manpowers 2010 Foreign and Chinese Private-Owned Companies Talent Competitiveness Survey, which reveals that 55 percent of management job seekers made the decision to switch employers in order to benefit from long-term career development. In fast-growing Chinese private-owned companies, mid-level and senior-level managers are generously empowered and offered great promotion potentialin some cases promotion is as frequent as once a year or even once a quarter.

Many Chinese privateowned companies have started paying attention to talent development as they experience fast growth; some are even developing their own training schemes.

Leverage HR as a strategic partner: HR departments of foreign

companies must be leveraged as strategic partners in organizations business development plans. For example, HR can add real value in securing the talent needed for business expansion, as well as formulating and improving strategies for talent flow, attraction and retention across countries, cities and regions. Finding talent to fuel business expansion in particular can be challenging for foreign companies targeting second- and third-tier cities or even smaller markets in China. In addition to coping with high turnover of managers in first-tier cities, they have to attract and recruit a large number of business development staff each year. However, cross-regional HR allocation in China is not straightforward. First, it is challenging to move and retain talent in emerging markets, which lag behind first-tier cities in terms of education,

6 Winning In China: Building Talent Competitiveness

medical resources, service facilities and overall standard of living. Second, Chinese private-owned companies, who are better at encircling cities from rural areas, transfer their research and development and marketing centers to first and second-tier cities where talent is plentiful, such as Beijing, Guangzhou, Shanghai, Xiamen and Shenzhen. This leads to increasingly fierce competition for management-level talent between foreign and Chinese private-owned companies. To gain an advantage in the current talent war, foreign companies should not only regularly review their compensation incentive systems and employee benefits according to the local market, but HR departments must also consider how best to develop high-potential employees from the perspective of a mid- and long-term business strategy.

Prioritize development of management talent: Due to the

pronounced shortage of talent at the management level, foreign companies need to pay particular attention to prioritizing the development of employees at that level. As competition for talent escalates, foreign companies must be highly responsive to trends in the labor market and ensure that they do not just become a training ground for individuals who then leave to grow their careers with Chinese private-owned companies. Today, when there is no perfect candidate for a position, companies are being rewarded for delaying hiring decisions while demand for their goods and services remains uncertain. With the global economy still fragile, organizations cannot afford to make an unsuitable hire, so they are instead getting more out of their existing workforce to meet the modest uptick in demand they are experiencing. But as organizations look ahead at the looming talent shortage, a shortage already felt at the management level, they must begin to look for candidates, perhaps within the organizations, that are a teachable fitthat is they may not have all the capabilities required for the job, but skills gaps can be filled in a timely and cost-effective way.

Upgrade the organizations HR strategy for management-level talent: According to the 2010 Business Climate
Survey by the American Chamber of Commerce in China (AmCham-China), HR issues have been the biggest challenge for AmCham-China members over the past three years.10 The more experience a job seeker has, the more likely they are to favor Chinese private-owned companies. According to Manpowers 2010 Foreign and Chinese Private-Owned Companies Talent Competitiveness Survey, of those job seekers preferring to work for Chinese private-owned companies, 61 percent are at management level and most are from foreign companies. This indicates that retaining management-level talent is a burning issue that foreign companies must address. During a period of rapid growth in the Chinese economy, one of the top priorities of HR management in foreign companies must be to attract, train, retain and develop high-potential talent.

Fresh Perspectives

Winning the Talent War: Advice for Chinese Private-Owned Companies

Create a strong employer brand:
A wealth of data indicates that employer brands are especially important for attracting senior managers. Chinese private-owned companies need to create a strong employer brand that makes the organization a magnet for management talent. Employer brands should identify and amplify the distinctive values, character and style that set the organization apart from others. It is an expression of an organizations values and culture, and any given companys employer brand should be unique. The key to building the right employer brand begins with identifying the distinctive qualities of the organization that create an emotional connection between employer and employee.

Create a compelling corporate culture: Corporate culture, as the basis for

long-term survival, development and ultimately success, plays an important role in attracting and retaining talent. There is still a considerable gap between Chinese private-owned companies focus on their corporate culture and that of foreign companies. However, some outstanding Chinese private-owned companies have successfully shaped their own unique corporate cultures as they have developed, which has increased their brand appeal. The grass-roots culture of Anta, Chinas largest sportswear manufacturer, is a prime example. Its culture is reflected in its HR management so that competent, intellectually curious and high-performing workers are rewarded with advancement opportunities and favorable compensation, regardless of his or her background and seniority. This helps Anta to attract and retain diversified talent, improving an employees sense of belonging and allowing the company to reap the benefits of implementing ideas from a variety of backgrounds.

Establish an appropriate management-level structure: As China

integrates into the global economy, management of Chinese private-owned companies, which has traditionally been extremely hierarchical, is increasingly inclusive and open to new talent. For instance, long-serving senior employees will now resign from leading posts or become members of the executive management team to make room for a new generation of executives. Leaders are now willing to delegate more to managers, improving managerial competence in Chinese private-owned companies. Nevertheless, old habits die hard, and so Chinese private-owned companies must clearly define the rights, obligations and duties of owners, operators and executors. They should also implement or improve assessments and decision-making systems, particularly during the transition from centralized to delegated management.

Refine the organizations HR management: As the market continues to grow, Chinese private-owned companies planning an IPO or international expansion are finding it difficult to attract and retain talent as a result of inadequate HR strategies and inefficient recruitment.

8 Winning In China: Building Talent Competitiveness

Fortunately, some of them are now aware of these difficulties and are consciously increasing their efforts to attract HR managerial talent. The demand for such talent is eight times greater than the demand for HR talent at a non-management level.11 However, in stark contrast to the robust demand, only 35 percent of HR professionals favor work opportunities at Chinese private-owned companies. This indicates an urgent need for the companies to better attract such talent.12 HR management needs to ensure that employees in functional posts and at the management level understand how their personal work goals support the business objectives of the organization. Criteria for talent selection and assessment must be designed to match the strategic development of the organization, with candidate profiles of competencies and qualifications to ensure alignment. Therefore, highcaliber recruitment teams should be developed to guide the recruitment process in order to recruit the right talent. If necessary, Chinese private-owned companies should establish a set of efficient and normative recruitment systems and management processes with the help of a HR consulting partner. In the meantime, in response to talent shortages, and especially to the global talent shortage, Chinese private-owned companies should reserve key talent for IPOs and overseas expansion. Moreover, as Chinas labor market becomes more sophisticated, employees awareness of their rights is also increasing, as is the quality of talent. Chinese privateowned companies therefore urgently need to refine their HR management with respect to labor and employee relations, performance management, career planning and development, and employee training and development. They must shift HR management from day-to-day management to developing employee potential, which will also serve to systematically attract and retain core talent in alignment with corporate strategy.

Anta prefers those whose career development planning matches the career platform of the company. To be sure, there are risks in employing talent from another industry. Thats why Anta sets up a one-year trial period for risk evaluation.

~ Yang Yong, HR Director, ANTA (China) Co., Ltd.

Fresh Perspectives

Retaining foreign talent: Many Chinese private-owned companies are

troubled by a low retention rate of non-native, senior-level talent brought into the company from outside the organization. However, they still like to employ senior foreign workers because of their international business experience. To overcome low retention rates, companies should establish targeted strategies and methods for retaining foreign employees. They should have a firm idea of the talent required by clearly defining the skills and qualifications needed as the organizations business strategy evolves. During the selection process, they should identify whether the motives of the job seeker match the career platforms and values of the company in order to ensure an optimal cultural fit between the applicant and the job. Before a new employee starts a job with the company, clarify incentive mechanisms and set up reasonable expectations and a trial period, so that he or she may fulfill his or her commitments made in being offered the role.

Lubrizol is a people-oriented company. Our attention, respect, care and relentless effort to provide sustainable growth to our employees runs deep in our blood. This culture is implanted throughout our organization. This is our DNA.

~ Wendy Zhang, HR Director, Lubrizol Asia Pacific

Seek advice from an HR professional service partner: It is typical

for Chinese private-owned companies not to have clear strategies for re-branding and industry upgrading because many lack the relevant experience. In the absence of adequate internal resources, the most effective way to solve this problem is to seek help from third-party consulting partners. With professional support, the company may complete its evolution toward professional management from top to bottom and improve its organizational structure and remuneration policies. This will enable the organization to rapidly improve its internal management systems and bridge the gap with internationally recognized peers.

10 Winning In China: Building Talent Competitiveness

Conclusion
China is undoubtedly becoming a land of opportunity for both foreign and Chinese-based organizations. The country is undergoing rapid growth which, coupled with shifting demographics and a growing awareness of the world outside its borders, is leading to changes in mindset when it comes to labor and a real turning point in developmentaway from factories that parachuted in to take advantage of cheap labor, and toward a China determined to get a slice of the piein terms of both the domestic and international market. This means that both foreign and Chinese companies will need to adapt in order to stay ahead. Employers must be alert to the shifts in Chinas economy and understand the challenges as well as opportunities that this will bring. Clarity of business objectives and the talent required to meet those objectives will be of utmost importance, particularly as the war for talent will only become more intense as the global economic recovery continues to gain traction.

References
1

Chinese Ministry of Commerce (http://www.mofcom.gov.cn) The next China, The Economist, 29 July 2010. The Economist, op. cit. 2010 Foreign and Chinese Private-Owned Companies Talent Competitiveness Survey, Manpower China, 2010. 2006 China Employee Engagement and Retention Survey, Manpower China, 2006. 2010 Foreign and Chinese Private-Owned Companies Talent Competitiveness Survey, Manpower China, 2010. 2010 Talent Shortage Survery, Manpower Inc., 2010.

The Economist, op. cit. The China Talent Paradox, Manpower China, 2006. 2010 Business Climate Survey, American Chamber of Commerce in China, 2010. 2009 Chinese Companies Talent Strategy Survey, Manpower China, 2009. 2010 Foreign and Chinese Private-Owned Companies Talent Competitiveness Survey, Manpower China, 2010.

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About Manpower Inc. in China

Manpower Inc., the world leader of innovative workforce solutions, has been serving the Chinese market since 1964. Today, Manpower has more than 400 recruiters operating in 20 cities across the nation. Offering a wide array of HR services, we provide executive search and selection and business solution (Manpower Business Solutions/MBS) services through our Manpower Professional brand. Manpower Business Solutions offers our clients Recruitment Process Outsourcing (RPO), managed services and recruitment consultation. Under our Manpower brand, we provide flexible staffing, basic staffing and workforce solution services. We serve more than 3,500 clients, including local and multinational companies in China, and have over 500,000 middle-level to senior-level candidates in our database. Through our subsidiary, Right Management, we provide talent assessment, leadership development, organizational effectiveness, employee engagement and workforce transition services. In addition, Manpower China is partnering with the Chinese government to support the countrys rapidly evolving labor market by providing professional talent assessment, career development planning, human resource consultation and international experience exchange service to governments and related organizations. In addition, David Arkless, Manpower Inc. President of Corporate and Government Affairs, was appointed Vice President of the China International Council for the Promotion of Multinational Corporations (CICPMC) in July 2010. The CICPMC is the largest and most prominent institution in China specifically engaged in promoting and serving the businesses of multinational corporations with investment in China and safeguarding the legitimate rights of multinational corporations.

For more information about Manpower and its operations in China, please visit: www.manpower.com.cn.

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